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Netflix Beats Earnings But Investors Are Still Wary

Netflix NFLX just released its earnings today after market close with an EPS of $0.76 beating the $0.57 EPS estimate by 33% and showing 19% growth YoY. Sales were $4.52 billion vs the $4.49 billion estimate. Making this the best quarter that Netflix has seen to date. Share still traded down after-hours falling 0.5%.

It appears that the price action associated with earnings for NFLX is strongly correlated with the number of subscriptions added, which has recently been driven primarily by international consumers. They reported 1.7 million new subscriptions domestically vs. expected 1.6 million and 7.9 internationally vs. an expected 7.3 million, totaling 9.6 million new net subscriptions (6.6% above estimates). The actual price action will not be realized until the markets open tomorrow and the real share volume for NFLX starts trading hands.

The subscription streaming space is becoming increasingly competitive with Apple AAPL announcing its own streaming service and Disney DIS announcing Disney+. This saturation is concerning investors who have priced in large growth numbers for Netflix. The details of Disney+ were released after-hours on Thursday and when trading opened Friday Netflix sunk 4.5% and Disney trading up over 11%.

Competition from Disney

Disney+ is leaving Netflix investors quite uneasy. For one, Disney+ is being offered to consumers at $6.99 per month, which is roughly half of Netflix’s standard HD package that’s priced at $12.99.

Disney offers a library of almost 100 years of content that consumers around the world know and love. Disney+ is offering Disney Classics along with all of its new hit Blockbusters like Black Panther, Star Wars, and the Avenger movies. It also has a library of decades of television content from The Disney Channel and Disney Television Studios. Disney is going to continue to come out with box-office hits that will wow consumers worldwide. All of Disney’s fantastic content is also getting pulled from Netflix’s library leaving them with less to offer consumers but a still continuously inflated subscription rates. Don’t get me wrong Netflix is still producing quality original content but is it up to the same prodigious standard that Disney has held itself for decades?

The international markets are driving over 80% of new subscriptions and will be the main growth driver for the future expansion of Netflix. This is where Disney is likely going to take market share. Disney has been a house hold name around the world for years with their internationally film releases and Disney theme parks in Tokyo (opened in 1983), Shanghai, Hong Kong and Paris. Netflix just expanded its services worldwide in the beginning of 2016. Cash strapped international consumers with a choice would likely choose a familiar name like Disney that offers its service for almost half the price of Netflix.

This is obviously all going to be contingent on Disney’s implementation of Disney+ which is expected to be available this November.